Midland-Odessa ends 'extraordinary' year with economy in record territory

Mella McEwen

Published 1:45 pm, Wednesday, February 1, 2012

"It's hard to emphasize how extraordinary these times are (in Midland and Odessa)," said Karr Ingham.

The Amarillo economist, who prepares the Midland-Odessa Regional Economic Index for the Midland Development Corp. and Security Bank, said the cities' combined economy grew 13.5 percent in 2011, compared to 2010. December marked the 22nd consecutive month of expansion for the index -- which surpassed its previous peak in November.

He said 2012 could be even stronger for the regional economy.

"The truism was that economic growth was predicated on the coming and going of crude prices in the same window," he said. "It's now a new economic world in which the true value of energy to the world marketplace is being factored in crude prices. We expect $95 to $100 a barrel in 2012 as opposed to $25 a barrel. That's changed the game in terms of the exploration and production economy and the overall economy as well. That should also suggest to retailers and developers looking for opportunities that this is a new economy in the Permian Basin based on a regional resource that's been around a long time."

Jim Smitherman, president and chief executive officer of Security Bank, called 2011 "the most unprecedented time I have ever seen." He said it may be time for residents to exercise a little caution and ask themselves if this rate of economic growth can last forever. They should also remind themselves that, while the Permian Basin has yielded a lot of oil and technology is helping yield even more oil, the amount that can be produced remains finite, he said.

"Anytime someone believes it's a 'no lose' economy, that's when trouble is around the corner," he said.

He said he is advising his customers, especially business customers, to not run up debt.

The only component that could have been stronger was employment, and upcoming revisions may show a local labor market that was even stronger than was believed, Ingham said.

Midland and Odessa posted job growth of 2.6 percent, which Ingham said was "nothing to complain about." It still doesn't seem in line with what happened in other components of the index.

The Texas Workforce Commission currently is revising its statistics and will begin issuing revised labor market data in March.

"(The area saw) the strongest post-recession recovery in the state and among the strongest, if not the strongest, in the country," Ingham said.

"There probably are not too many places that have regained all they lost in the recession -- spending, employment, housing, construction. I simply can't imagine any other metropolitan area that has everything going for it that Midland and Odessa has. You've come virtually full circle, regaining all that was lost from the peak in December 2008."

In addition to a strong labor market fueling economic growth, he said consumer activity also was driving expansion.

Midland and Odessa residents and businesses spent a little less than $4 billion -- adjusted for inflation -- at retail establishments in 2011. Ingham said the amount, not adjusted for inflation, was $5.5 billion.

"This is based on sales tax rebates sent to Midland and Odessa," he said. "Factor in untaxed items, and the figure is even higher."

Spending in 2011 was 26.1 percent higher than in 2010 and 12 percent above the previous high reached in 2008.

Automotive spending also surpassed its pre-downturn peak, gaining 39 percent in 2011 over 2010 levels. He said the growth in automotive spending makes Midland-Odessa an anomaly among Texas metro areas.

Another area that makes Midland-Odessa an anomaly is the strength of the new housing market.

"In most metro areas, housing construction peaked a number of years ago and has been on a steady decline since then. In Midland-Odessa, however, more new single-family residence permits were issued in 2011 than in any year dating back to at least 1995, the year I began collecting data for the index, and likely long before that," Ingham said.

Midland and Odessa issued 857 permits in 2011, up 27.7 percent from 2010; the fourth quarter total of 192 permits is 48.8 percent higher than the fourth quarter 2010.

"(Existing home sales) look a bit more normal relative to other metro areas, and the general trends around the state as a whole," he said.

The 2,719 homes sold in 2011 were 10.5 percent higher than the 2,460 sold in 2010. They were lower compared to 2001 and each year from 2003 through 2008. Ingham said the total also is lower than the peak of 3,440 homes sold in 2005.

"Pricing of those homes is a different matter," he said. The average sales price of $189,661 is 6.8 percent higher than 2010's total of $177,631.

The two cities issued almost $500 million in building permits, up 5.4 percent from the total in 2010. Ingham said the $472 million in permits issued in 2011 was the highest on record, except for 2001 when a $415 million permit for a new power plant was issued in Odessa.

In a sign that economic growth is coming from outside the area, Ingham said hotel-motel tax collections were up 51.1 percent, to $6.6 million, compared to the $4.39 million collected in 2010.

"The expansion in hotel-motel activity is, of course, a function of a growing economy as well as the direct use of local lodging facilities by oil and gas companies," he said.

He said the year was a great year for the Midland-Odessa economy and for the regional economy of the Permian Basin. "The expansion in the economy and in the business cycle was dramatic: Business was better, jobs were added and the economic pie got much bigger."